2018: The Year That Shook Crypto

Leroy Margolis
20th December 2018

2018 was the year that crypto fell to earth with louder critics than ever, and the price of Bitcoin free falling; the industry has had been stung with what some would argue was a much-needed reality check.

But was this just a one-off winter of discontent or indicative of a more worrying long-term trend? We take a look back at some of the key themes and stories that emerged this year and their implications for the year ahead.

Bearish Market

After an unprecedented boom in 2017, in 2018 Bitcoin lost more than 75% of the value amidst a backdrop of regulatory backlash.

The CEO of Binance, Changpeng Zhao, believes that this year was a ‘build year’ and that 2019 will be the year of crypto mass adoption. He said that if it wasn’t for a bearish downturn in the market, even major exchanges, Binance included, would have had a major struggle in handling the inflated levels of trading volume.

This outlook offers a glimmer of hope in what was a largely pessimistic year for the price of cryptocurrency. However, as Zhao points out, the volume of trading increased and there were improvements to be seen across exchanges.

Following the Hype Cycle for Emerging Technologies, which is outlined below, it is likely see that the Hype Cycle peak for Blockchain and cryptocurrency were the highs experienced in 2017. The graph below was published in August 2018, indicate that we  are moving towards the ‘Trough of Disillusionment’. We expect this to continue into 2019 and only really start to upturn towards the end of 2019 as the correction in the market takes hold and consolidation continues.

Gartner’s Hype Cycle for Emerging Technologies, August 2018

‍‘The Party Is Truly Over’ – SEC Cracks Down on ICOs

Dr Nouriel Roubini described crypto as ‘the mother of all scams and bubbles’ at the US Senate’s Commission into Cryptocurrency earlier this year. In our response article we countered his main arguments, which were overwhelmingly sensationalist and irrational. But amongst them, there was a glimmer of truth regarding ICOs, with many scams and ‘pump and dump’ schemes causing the SEC to finally crack down and regulate ICOs this year.

All US based startups that have recently completed an ICO now have to face regulation under US Federal Securities Law, this may also extend to non-US based platforms that have accepted US investor funds… The principle problem with the ICO trend has been the promise to deliver a project communicated only via a whitepaper and often, the manifesto which is outlined in the white paper fails to ever be delivered as promised, or at all. Indeed, according to research this year from Boston College, more than half of the startups running ICOs fail within 4 months.

The move by the SEC forces startups to look to the long-term, rather than what was once the short-term win of running an ICO.

The Rise Of Stable Coins

The high volatility of cryptocurrency has made it a dream for traders but restricted the widespread adoption of crypto and the tech that powers it from wider public and business use. How can you build a business or pay your rent when the value of the currency you rely on can drop so dramatically?

Enter stable coins; a much more attractive prospect for both ICOs and investors. Backed by assets such as fiat currency and property, stable coins such as Tether have seen a surge in popularity this year. The world’s largest cryptocurrency platform, Binance, has listed several stable coins this year, including TrueUSD.

We see 2019 to be a flight to security, and for this reason, a stable tokens will continue to rise in popularity and utility.

The Bitcoin Cash Saga

Following a difference of opinion on block size, a war erupted in the Bitcoin Cash camp, which echoed the original Bitcoin fork which led to the inception of Bitcoin Cash in August 2017. In November this year, a hard fork occurred of Bitcoin Cash creating Bitcoin Cash ABC and Bitcoin SV (Satoshi’s Vision) spearheaded by Craig Wright, who himself had previously claimed to be the creator of Bitcoin, Satoshi Nakamoto.

This huge spat which played out on social media, did nothing to calm the already troubled waters of the crypto market, adding fuel and uncertainty to the fire.

Since the hard fork, there have been claims made of double spends occuring on the Bitcoin SV network as well as supposed vulnerabilities due to the amount of centralisation on the platform (75% of the hash rate is controlled by four of the Bitcoin SV nodes).

This week, Bitcoin Cash ABC has rallied and is up nearly 40% while Bitcoin SV has also risen but remains in danger of losing ground and falling out of the Top 10 coins for market cap, according to statistics shared on coinmarketcap.com. It remains to be seen how this situation will continue to unfold in the year ahead.

Taken from coinmarketcap.com on 19th December 2018.

Security Tokens

Security Tokens are an exciting new development to occur this year and have come to prominence partly due to the new SEC regulations which treat ICOs as Securities.

Securities are a financial asset that is tradeable, like bonds or shares for example. They are primarily used by institutions to raise funds and allow investors to own part of a company or entity without taking complete control of it, where investors are promised a return in some form, like dividends, for example. Security Tokens are thus the tokenised cryptographic version of Securities.

The interesting thing about Security Tokens is that unlike traditional security assets, they allow for much greater liquidity, as well as a much greater speed of delivery and automation as they are programmable via Smart Contracts.

Due to the SEC’s new regulations regarding ICOs, there is a much greater demand for security tokens as they are fully compliant with all new regulations. They also offer a further safeguard for businesses who have been interested in utilising blockchain but may have been put off until now.

Security Tokens offer another layer of trust for both investors and companies; investors can more easily own assets and companies, that may have been apprehensive about testing blockchain technology previously, get the safeguarding they need, as well as greater liquidity, efficiency and speed.

Bakkt – Bitcoin Futures Delayed Till 2019

After a tumultuous year, the hotly anticipated Bakkt Bitcoin Futures announcement was billed as the bullish antidote to a difficult year. However, the announcement was delayed until 24th January 2019, sending shockwaves across the crypto world. The CEO of Bakkt, Kelly Loeffler, reassured people that this delay was in no relation to the markets, saying:

‘As is often true with product launches, there are new processes, risks and mitigants to test and re-test, and in the case of crypto, a new asset class to which these resources are being applied. So, it makes sense to adjust our timeline as we work with the industry toward launch.’

Whilst the delay was frustrating for many, it is encouraging to think that there will be some positive news to launch the New Year with, when the Bitcoin Futures are announced pending CFTC approval in January.

The Growth Of Fintech

One of the major themes of the year was the exciting growth of the Fintech sector, which saw record investment this year.

‍Many Fintech companies are in a period of transition and looking to Blockchain to provide future scalability and bring their legacy systems and services into the digital age. There are already several examples of DLTs already being used within Fintech, including institutions such as the Bank of England and some departments of the US government, along with tech and banking conglomerates such as IBM and Google.

2019 looks set to see even further innovation at the intersection of Finance and Technology and we are excited to see wider adoption of DLT in this area in the coming year.

40% Increase Of Coins On The Market

Despite the price chaos that reigned this year, the volume of trading and the total number of coins on the market increased by 40% this year.

The most notable success stories were Ripple (XRP) which although it’s price fell to less than 90% of what it was at it’s 2017 peak, is one of the few coins that ends the year with minimal damage. Although the SEC has not decided whether Ripple should be classed as a Security yet, it has been buoyed by partnerships with powerhouses like American Express and Moneygram and moves into 2019 as the coin to watch.

The Search For The Next Scalable Protocol

This year has seen the growth of DAG (Directed Acyclic Graph) data structures, used by projects such as IOTA, being touted as the solution to Blockchain’s scalability problem. However, just as blockchains struggle to scale, owing to fundamental early stage design choices which are proving difficult to conquer, so too will DAGs. They will hit a glass ceiling where scaling will not be possible without significant centralisation as we outline in detail in our article on Why DAGs Don’t Scale.

Other projects which are Blockchain based will also face scalability problems that prevent mass adoption, namely the slow speed of payment processing, or alternatively, compromising on decentralisation in order to increase speed, which leads to its own problems, such as increased vulnerability to hacking.

2019 – The Year Crypto Grows Up

Despite freefalling crypto prices, the underlying Blockchain technology has seen further growth and interest from major financial institutions and businesses this year. New opportunities have emerged from the gloom, including the rise in demand for Security Tokens and Stable Coins which allow for greater trust and safeguarding for many businesses who are interested in leveraging Blockchain technology, as well as greater security for investors.

Blockchain mass adoption will always be limited by its inherent scalability issues and so, next year, the search is on for the platform that can overcome these limits and start to fulfil the promise of Satoshi Nakamoto’s vision. 2019 will see continuing innovation, but there are still three main problems that need to be addressed collectively if Blockchain platforms are to scale for mass market adoption, namely:

  • Scalability
  • Buildability
  • Price Volatility

We have outlined how we intend to solve the scalability issues of Blockchain in many of our blog articles, including The Radix Basics. Stay tuned for the Radix Atom Model Spec and Economics whitepaper coming early next year where we will address how we intend to address the two remaining problems of high volatility and buildability which are hindering the mass adoption of Blockchain and DLT.